Editor's Note: Learn from a panel of experts and entrepreneurs who have successfully financed their own ventures and are helping others do it at the Thought Leaders Live 2013 event May 29, in Long Beach, Calif. Event and ticket information can be found here.
The current economic situation creates a dilemma of sorts for entrepreneurs. Due to the economic slowdown and a lack of sales, businesses have seen their balance sheets deteriorate to the point that they are no longer a viable credit risk. Thus, banks have restricted their credit and lending policies, severely impacting entrepreneurial firms. What's the solution? Entrepreneurs need to focus on the big three: cash, sales and debt. Below is a simple quiz; the higher your score, the better you are financially.
1) Cash flow: How long can you pay your current monthly bills using the cash you have on hand?
31-60 days +3 7-30 days +1 Less than 7 days -3
Monthly cash flow divided by interest expense:
Greater than 2.0 +3 1.01 to 1.99 +1 Less than 1.0 -3
3) Revenue growth over the past year:
Increased +3 Held on to customers +1 Decreased -3
Percent increase in new customers (from last quarter)
Greater than 10 percent +3 From 1 to 10 percent -1 Lost up to 10 percent of customer base -3
5) Debt to assets ratio:
No debt +3 .01 to .79 +1 Greater than .80 -3
Business credit card debt:
No debt +3 $1,000 to $2,499 +1 Greater than $2,500 -3
Remember, the solution to surviving tough times is balancing the three-legged stool--cash, sales and debt. Pay attention to all three and you should do OK. Add up your score below to see where you are:
Severe risk of failure:
SCORE -11 to -18
High risk of failure: SCORE -3 to -10
Elevated risk of failure: SCORE -2 to +3
Guarded risk of failure: SCORE +4 to +11
Low risk of failure: SCORE +12 to +18